Application for Recognition of Exemption

This discussion describes certain information to be provided upon
application for recognition of exemption by all organizations created
for any of the purposes described earlier in this chapter. For
example, the application must include a conformed copy of the
organization's articles of incorporation, as discussed under
Articles of Organization later in this chapter. See the
organization headings that follow for specific information your
organization may need to provide.

Form 1023.
Your organization must file its application for recognition of
exemption on Form 1023. See chapter 1 and the instructions
accompanying Form 1023 for the procedures to follow in applying. Some
organizations are not required to file Form 1023. These are discussed
later in this section.

Form 1023 and accompanying statements must show that all of the
following are true.

The organization is organized exclusively for, and will be
operated exclusively for, one or more of the purposes (charitable,
religious, etc.) specified in the introduction to this chapter.

No part of the organization's net earnings will inure to the
benefit of private shareholders or individuals. You must establish
that your organization will not be organized or operated for the
benefit of private interests, such as the creator or the creator's
family, shareholders of the organization, other designated
individuals, or persons controlled directly or indirectly by such
private interests.

The organization will not, as a substantial part of its
activities, attempt to influence legislation (unless it elects to come
under the provisions allowing certain lobbying expenditures) or
participate to any extent in a political campaign for or against any
candidate for public office. See Political activity, next,
and Lobbying Expenditures, near the end of this
chapter.

Political activity.
If any of the activities (whether or not substantial) of your
organization consist of participating in, or intervening in, any
political campaign on behalf of (or in opposition to) any candidate
for public office, your organization will not qualify for tax-exempt
status under section 501(c)(3). Such participation or intervention
includes the publishing or distributing of statements.

Whether your organization is participating or intervening, directly
or indirectly, in any political campaign on behalf of (or in
opposition to) any candidate for public office depends upon all of the
facts and circumstances of each case. Certain voter education
activities or public forums conducted in a non-partisan manner may not
be prohibited political activity under section 501(c)(3), while other
so-called voter education activities may be prohibited.

If your organization is uncertain as to the effect of its voter
education activities, you should request a letter ruling from the
Internal Revenue Service. Send the request to:

A receipt will be given at the courier's desk. The package should
be marked: RULING REQUEST SUBMISSION.

Effective date of exemption.
Most organizations described in this chapter that were organized
after October 9, 1969, will not be treated as tax exempt unless they
apply for recognition of exemption by filing Form 1023. These
organizations will not be treated as tax exempt for any period before
they file Form 1023, unless they file the form within 15 months from
the end of the month in which they were organized. If the organization
files the application within this 15-month period, the organization's
exemption will be recognized retroactively to the date it was
organized. Otherwise, exemption will be recognized only for the period
after the IRS receives the application. The date of receipt is the
date of the U.S. postmark on the cover in which an exemption
application is mailed or, if no postmark appears on the cover, the
date the application is stamped as received by the IRS.

Private delivery service.
If a private delivery service designated by the IRS, rather than
the U.S. Postal Service, is used to deliver the application, the date
of receipt is the date recorded or marked by the private delivery
service. At the time this publication was printed, the following
private delivery services had been designated by the IRS.

Airborne Express (Airborne): Overnight Air Express Service,
Next Afternoon Service, and Second Day Service.

United Parcel Service (UPS): UPS Next Day Air, UPS Next Day
Air Saver, UPS 2nd Day Air, and UPS 2nd Day Air A.M.

Amendments to enabling instrument required.
If an organization is required to alter its activities or to make
substantive amendments to its enabling instrument, the
ruling or determination letter recognizing its exempt status will be
effective as of the date the changes are made. If only a
nonsubstantive amendment is made, exempt status will be
effective as of the date it was organized, if the application was
filed within the 15-month period, or the date the application was
filed.

Extensions of time for filing.
There are two ways organizations seeking exemption can receive an
extension of time for filing Form 1023.

Automatic 12-month extension. Organizations will
receive an automatic 12-month extension if they file an application
for recognition of exemption with the IRS within 12 months of the
original deadline. To get this extension, an organization must add the
following statement at the top of its application: "Filed Pursuant
to Section 301.9100-2."

Discretionary extensions. An organization that
fails to file a Form 1023 within the extended 12-month period will be
granted an extension to file if it submits evidence (including
affidavits) to establish that:

It acted reasonably and in good faith, and

Granting a discretionary extension will not prejudice the
interests of the government.

How to show reasonable action and good faith.
An organization acted reasonably and showed good faith if at least
one of the following is true.

The organization requests relief before its failure to file
is discovered by the IRS.

The organization failed to file because of intervening
events beyond its control.

The organization exercised reasonable diligence (taking into
account the complexity of the return or issue and the organization's
experience in these matters) but was not aware of the filing
requirement.

The organization reasonably relied upon the written advice
of the IRS.

The organization reasonably relied upon the advice of a
qualified tax professional who failed to file or advise the
organization to file Form 1023. An organization cannot rely on the
advice of a tax professional if it knows or should know that he or she
is not competent to render advice on filing exemption applications or
is not aware of all the relevant facts.

Not acting reasonably and in good faith.
An organization has not acted reasonably and in good faith under
the following circumstances.

It seeks to change a return position for which an
accuracy-related penalty has been or could be imposed at the time the
relief is requested.

It was informed of the requirement to file and related tax
consequences, but chose not to file.

It uses hindsight in requesting relief. The IRS will not
ordinarily grant an extension if specific facts have changed since the
due date that makes filing an application advantageous to an
organization.

Prejudicing the interest of the government.
Prejudice to the interest of the government results if granting an
extension of time to file to an organization results in a lower total
tax liability for the years to which the filing applies than would
have been the case if the organization had filed on time. Before
granting an extension, the IRS may require the organization requesting
it to submit a statement from an independent auditor certifying that
no prejudice will result if the extension is granted.

The interests of the Government are ordinarily prejudiced if the
tax year in which the application should have been filed (or any tax
year that would have been affected had the filing been timely) are
closed by the statute of limitations before relief is granted. The IRS
may condition a grant of relief on the organization providing the IRS
with a statement from an independent auditor certifying that the
interests of the Government are not prejudiced.

Procedure for requesting extension.
To request a discretionary extension, an organization must submit
(to the IRS address shown on Form 8718) the following.

A statement showing the date Form 1023 was required to have
been filed and the date it was actually filed.

Any documents relevant to the application.

An affidavit describing in detail the events that led to the
failure to apply and to the discovery of that failure. If the
organization relied on a tax professional's advice, the affidavit must
describe the engagement and responsibilities of the professional and
the extent to which the organization relied on him or her.

This affidavit must be accompanied by a dated declaration,
signed by an individual who has personal knowledge of the facts and
circumstances, who is authorized to act for the organization, which
states, "Under penalties of perjury, I declare that I have examined
this request, including accompanying documents, and, to the best of my
knowledge and belief, the request contains all the relevant facts
relating to the request, and such facts are true, correct, and
complete."

Detailed affidavits from individuals having knowledge or
information about the events that led to the failure to make the
application and to the discovery of that failure. This includes the
organization's return preparer, and any accountant or attorney,
knowledgeable in tax matters, who advised the taxpayer on the
application. The affidavits must describe the engagement and
responsibilities of the individual and the advice that he or she
provided.

These affidavits must include the name, current address, and
taxpayer identification number of the individual, and be accompanied
by a dated declaration, signed by the individual, which states:
"Under penalties of perjury, I declare that I have examined this
request, including accompanying documents, and, to the best of my
knowledge and belief, the request contains all the relevant facts
relating to the request, and such facts are true, correct, and
complete."

The organization must state whether the returns for the tax
year in which the application should have been filed or any tax years
that would have been affected by the application had it been timely
made is being examined by the IRS, an appeals office, or a federal
court. The organization must notify the IRS office considering the
request for relief if the IRS starts an examination of any such return
while the organization's request for relief is pending.

The organization, if requested, has to submit copies of its
tax returns, and copies of the returns of other affected
taxpayers.

A request for this relief is a request that must be submitted as a
request for a letter ruling and be accompanied by the applicable user
fee.

More information.
For more information about these procedures, see sections
301.9100-1, 301.9100-2, and 301.9100-3 of the
regulations.

Notification from IRS.
Organizations filing Form 1023 and satisfying all requirements of
section 501(c)(3) will be notified of their exempt status in writing.

Organizations Not Required To File Form 1023

Some organizations are not required to file Form 1023.

These include:

Churches, interchurch organizations of local units of a
church, conventions or associations of churches, or integrated
auxiliaries of a church, such as a men's or women's organization,
religious school, mission society, or youth group.

Any organization (other than a private foundation) normally
having annual gross receipts of not more than $5,000 (see Gross
receipts test, later).

These organizations are exempt automatically if they meet the
requirements of section 501(c)(3).

Filing Form 1023 to establish exemption.
If the organization wants to establish its exemption with the IRS
and receive a ruling or determination letter recognizing its exempt
status, it should file Form 1023. By establishing its exemption,
potential contributors are assured by the IRS that contributions will
be deductible. A subordinate organization (other than a private
foundation) covered by a group exemption letter does not have to
submit a Form 1023 for itself.

Private foundations.
See Private Foundations and Public Charities, later, in
this chapter, for more information about the additional notice
required from an organization in order for it not to be presumed to be
a private foundation and for the additional information required from
a private foundation claiming to be an operating foundation.

Gross receipts test.
For purposes of the gross receipts test, an organization normally
does not have more than $5,000 annually in gross receipts if:

During its first tax year the organization received gross
receipts of $7,500 or less,

During its first 2 years the organization had a total of
$12,000 or less in gross receipts, and

In the case of an organization that has been in existence
for at least 3 years, the total gross receipts received by the
organization during the immediately preceding 2 years, plus the
current year, are $15,000 or less.

An organization with gross receipts more than the amounts in the
gross receipts test, unless otherwise exempt from filing Form 1023,
must file a Form 1023 within 90 days after the end of the period in
which the amounts are exceeded. For example, an organization's gross
receipts for its first tax year were less than $7,500, but at the end
of its second tax year its gross receipts for the 2-year period
were more than $12,000. The organization must file Form 1023 within 90
days after the end of its second tax year.

If the organization had existed for at least 3 tax years and had
met the gross receipts test for all prior tax years but fails to meet
the requirement for the current tax year, its tax-exempt status for
the prior years will not be lost even if Form 1023 is not filed within
90 days after the close of the current tax year. However, the
organization will not be treated as a section 501(c)(3) organization
for the period beginning with the current tax year and ending with the
filing of Form 1023.

Example.
An organization is organized and operated exclusively for
charitable purposes and is not a private foundation. It was
incorporated on January 1, 1996, and files returns on a calendar-year
basis. It did not file a Form 1023. The organization's gross receipts
during the years 1996 through 1999 were as follows:

1996

$3,600

1997

2,900

1998

400

1999

12,600

The organization's total gross receipts for 1996, 1997, and 1998
were $6,900. Therefore, it did not have to file Form 1023 and is
exempt for those years. However, for 1997, 1998, and 1999 the total
gross receipts were $15,900. Therefore, the organization must file
Form 1023 within 90 days after the end of its 1999 tax year. If it
does not file within this time period, it will not be exempt under
section 501(c)(3) for the period beginning with tax year 1999 and
ending when the Form 1023 is received by the IRS. The organization,
however, will not lose its exempt status for the tax years ending
before January 1, 1999.

The IRS will consider applying the Commissioner's discretionary
authority to extend the time for filing Form 1023. See the procedures
for this extension discussed earlier.